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56 UNDERWATER BORROWER RATE DROPS BELOW 17 PERCENT e number of U.S. homeowners who owe more on their mortgage than their home is worth has fallen off by nearly half in the last two years, but third-quarter data shows millions are still close to slipping back under. In a report released recently, property data company Zillow estimated that 8.7 million homeowners living in the nation's top housing markets were underwater on their mortgage as of the end of the third quarter, putting the country's negative equity rate at 16.9 percent. e United States underwater rate peaked at 31.4 percent in 2012's first quarter. "e market has made terrific strides since bottoming out in late 2011 and early 2012, with millions of underwater homeowners freed in just the past few years, and millions more set to surface in coming months and years," said Dr. Stan Humphries, chief economist at Zillow. By the end of Q 3 2015, the company expects negative equity will drop further to a rate of 15.2 percent. While improving trends in home values and foreclosures have helped push more homeowners into positive equity positions, many are still barely afloat, possessing too little equity to realistically afford the cost of selling their home and buying a new one. Because they're essentially locked into their houses, those homeowners are unable to contribute to their local stock of for- sale homes and are stuck in the way of entry-level or move-up buyers. Factoring in that group, Zillow estimates the "effective" negative equity rate is closer to 35 percent. On top of that, most of the improvement in home values has happened in the housing market's highest price tier, where homeowners are only about one-third as likely to be underwater as those in bottom-tier homes (9.3 percent compared to 27.4 percent). e gap is even greater in some of the nation's still-struggling markets—like Detroit, where nearly 50 percent of homes valued in the bottom price tier were underwater, while 7.6 percent of the highest-priced homes were upside down. Humphries says those problems are partly a reflection of some of the housing market's current challenges, including low inventory, rapid value appreciation, and weak sales. "None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas," he said. "But we're moving in the right direction, and time will heal all wounds." EXISTING-HOME SALES DECLINE DESPITE LOW INTEREST RATES Sales of pre-owned homes stalled out in November, plunging to their slowest pace in half a year only one month after hitting a 2014 high. e National Association of Realtors (NAR) reported recently that existing-home sales fell 6.1 percent from October to November, landing at a seasonally adjusted annual rate of 4.93 million. e association also cut October's estimated sales rate slightly to 5.25 million. "Fewer people bought homes last month despite interest rates being at their lowest levels of the year," NAR Chief Economist, Lawrence Yun said. "e stock market swings in October may have impacted some consumers' psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market." Despite the stumble, home resales in November were still up 2.1 percent from levels a year ago, making it just the second month in 2014 to see sales rise year-over-year. It's been a year of starts and stops for home sales, which have struggled under the weight of rising mortgage rates (a trend that has reversed in recent months), a tighter lending environment, declining affordability, and a lack of housing stock available for buyers. In November, the total inventory of existing homes for sale was 2.09 million, NAR estimates, down 6.7 percent from October. "Lagging homebuilding activity continues to hamstring overall housing supply and is still too low in relation to this year's promising job growth," Yun said in December. "Much faster price and rent appreciation—easily exceeding wage growth—will occur next year unless new construction picks up measurably." About one-quarter of resale transactions in November were made entirely in cash, down from nearly one-third last year, NAR reported. Individual investors, who account for many cash sales, were responsible for 15 percent of total sales. Meanwhile, the percentage of first-time homebuyers climbed slightly to 31 percent, the highest share since October 2012. With Fannie Mae and Freddie Mac opening the door for low down payments, the association hopes to see the share of first-time homebuyers pick up to a more normal level. "NAR applauds Fannie and Freddie's commitment to homeownership by serving creditworthy borrowers who lack the resources for substantial down payments, plus closing costs with its new down payment program," NAR President, Chris Polychron said. "e new program mitigates risk with strong underwriting and ensures that responsible buyers have access to safe and affordable mortgage credit." Existing-home sales fell month-over-month in November in all four census regions, led by a 9.6 percent drop in the West to a yearly rate of 1.03 million. at was followed by declines of 8.9 percent in the Midwest (to 1.13 million), 4.2 percent in the Northeast (to 680,000), and 3.2 percent in the South (to 2.09 million). Compared to a year ago, sales were up in the Northeast and South, outperforming November 2013 by 4.6 percent and 5.0 percent, respectively. At the same time, sales were down 1.7 percent in the Midwest and 1.0 percent in the West. The number of U.S. homes with a mortgage in negative equity in the third quarter of 2014, representing 10.3 percent of all residential homes with a mortgage. Source: CoreLogic STAT INSIGHT 5.1 million

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